Economic Monitor – Weekly Commentary
by Eugenio Alemán

Inflation sends mixed signals: manageable for the Federal Reserve, painful for consumers

June 12, 2026

Chief Economist Eugenio J. Alemán discusses current economic conditions.

There is a great deal to unpack from this week’s press conference by the new chairman of the Federal Reserve, Kevin Warsh. Most striking is his markedly different approach to Fed communications. This was evident not only in the statement accompanying the federal funds rate decision, but also in the abandonment of forward guidance and his reluctance to provide insight into the committee’s internal deliberations.

Even the first line of the press release stood out: “The Federal Open Market Committee approved the following statement for release by a 12–0 vote.” Notably, this unanimity referred only to the release of the statement, not to the policy decision itself. As a result, we are left without visibility into dissent within the committee, including who supported or opposed the policy stance. This represents a meaningful shift in how monetary policy decisions are communicated.

It remains unclear whether this new communication framework will limit Fed members’ ability to express independent views, the practice commonly referred to as “Fed speak.” If those channels remain intact, then such commentary may become the primary way markets gauge the Fed’s policy leanings. For now, however, the degree of openness of Fed speakers is uncertain.

One can reasonably infer that discussions were likely intense and divided, given the more hawkish tone of the dot plot relative to March. Yet the decision to hold rates steady indicates that a majority ultimately aligned around that outcome.

What surprised us most, however, was Chairman Warsh’s assertion that “inflation is a choice.” This is an unusual framing for the head of a central bank. Taken literally, it implies that policymakers knowingly allowed inflation to remain elevated over the past five years rather than bringing it back to target. Such a deterministic view risks oversimplifying the complex forces that drive inflation and, in doing so, raises questions about the Fed’s policy framework.

It is true that the Fed faced criticism for not acting more quickly when inflation began rising in early 2021, likely prolonging the period of elevated price pressures. Still, the chairman’s comment could be interpreted as a veiled critique of prior leadership, including the former chair, board members, and regional presidents, not something you want to do so publicly if you want to lead the institution.

Milton Friedman famously argued that inflation is “always and everywhere a monetary phenomenon,” meaning it can ultimately be controlled through the growth of the money supply. This may be the intellectual foundation behind Warsh’s statement. However, asserting that inflation is a choice suggests that external conditions – such as the global recovery from COVID – were largely irrelevant. That interpretation is difficult to reconcile with reality.

During the pandemic recovery, households accumulated roughly $2.5 trillion in excess savings and subsequently spent a significant portion of it. Preventing that spending surge would have required extraordinarily restrictive interest rates, levels that would likely have been untenable. It is difficult to imagine any credible policy path that could have fully offset that impulse.

Moreover, the inflationary episode of the past several years was not driven primarily by traditional monetary channels. Rather, it reflected an unprecedented fiscal expansion, with the federal government transferring large sums directly to households and businesses. These funds were not intermediated through the banking system in the usual way; they were injected directly into the economy. In this context, standard monetary tools, including a monetarist view, had limited capacity to immediately counteract those forces.

In that sense, inflation is not a “choice” but the outcome of a confluence of factors, including policy decisions – both fiscal and monetary – household and business choices, as well as external shocks. What is a choice is the response: the commitment to bring inflation back toward target once it deviates. That is the essence of the Fed’s inflation mandate and of today’s inflation targeting.

Could the Powell Fed have acted more quickly? Perhaps. But such judgments are easier in hindsight. Policymakers were operating in an environment shaped by the lessons of the Global Financial Crisis, an episode in which insufficient accommodation was seen as a greater risk. That perspective influenced the decision to allow inflation to run somewhat above target before tightening policy. With the benefit of hindsight, that approach proved costly. But it is also clear that policymakers have learned from that experience.

This raises an important inconsistency. If inflation is indeed a choice, and if the Fed has been making the wrong choice for several years, then why did the Warsh Fed refrain from tightening policy at this meeting? One explanation is that the chairman was unable to build a majority in favor of an immediate rate increase. Alternatively, the committee may be buying time as internal reviews of the inflation framework get underway.

There was also little discussion of the Fed’s balance sheet. Chairman Warsh noted that interest rates appear restrictive primarily for the housing sector, a sector that benefited disproportionately from quantitative easing. How this view evolves, particularly if the Fed resumes tightening as suggested by the dot plot, will be important to watch.

In short, there is still much to be unpacked from this meeting in the weeks ahead as well as from Fed speak, it if is allowed to go uncensored. What is already evident, however, is that the internal debate was likely more contentious than the chairman’s remarks suggested.

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Consumer Price Index is a measure of inflation compiled by the US Bureau of Labor Statistics. Currencies investing is generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising.

Consumer Sentiment is a consumer confidence index published monthly by the University of Michigan. The index is normalized to have a value of 100 in the first quarter of 1966. Each month at least 500 telephone interviews are conducted of a contiguous United States sample.

Personal Consumption Expenditures Price Index (PCE): The PCE is a measure of the prices that people living in the United States, or those buying on their behalf, pay for goods and services. The change in the PCE price index is known for capturing inflation (or deflation) across a wide range of consumer expenses and reflecting changes in consumer behavior.

The Consumer Confidence Index (CCI) is a survey, administered by The Conference Board, that measures how optimistic or pessimistic consumers are regarding their expected financial situation. A value above 100 signals a boost in the consumers’ confidence towards the future economic situation, as a consequence of which they are less prone to save, and more inclined to consume. The opposite applies to values under 100.

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GDP Price Index: A measure of inflation in the prices of goods and services produced in the United States. The gross domestic product price index includes the prices of U.S. goods and services exported to other countries. The prices that Americans pay for imports aren't part of this index.

Employment cost Index: The Employment Cost Index (ECI) measures the change in the hourly labor cost to employers over time. The ECI uses a fixed “basket” of labor to produce a pure cost change, free from the effects of workers moving between occupations and industries and includes both the cost of wages and salaries and the cost of benefits.

US Dollar Index: The US Dollar Index is an index of the value of the United States dollar relative to a basket of foreign currencies, often referred to as a basket of U.S. trade partners' currencies. The Index goes up when the U.S. dollar gains "strength" when compared to other currencies.

The FHFA HPI is a broad measure of the movement of single-family house prices. The FHFA HPI is a weighted, repeat- sales index, meaning that it measures average price changes in repeat sales or refinancings on the same properties.

Import Price Index: The import price index measure price changes in goods or services purchased from abroad by U.S. residents (imports) and sold to foreign buyers (exports). The indexes are updated once a month by the Bureau of Labor Statistics (BLS) International Price Program (IPP).

ISM Services PMI Index: The Institute of Supply Management (ISM) Non-Manufacturing Purchasing Managers' Index (PMI) (also known as the ISM Services PMI) report on Business, a composite index is calculated as an indicator of the overall economic condition for the non-manufacturing sector.

The ISM Manufacturing Index: The GDP Now Institute of Supply Management (ISM) Manufacturing Measures the health of the manufacturing sector by surveying purchasing managers at manufacturing firms. The survey asks about current business conditions and expectations for the future, including new orders, inventories, employment, and deliveries.

Consumer Price Index (CPI) A consumer price index is a price index, the price of a weighted average market basket of consumer goods and services purchased by households.

Producer Price Index: A producer price index (PPI) is a price index that measures the average changes in prices received by domestic producers for their output.

Industrial production: Industrial production is a measure of output of the industrial sector of the economy. The industrial sector includes manufacturing, mining, and utilities. Although these sectors contribute only a small portion of gross domestic product, they are highly sensitive to interest rates and consumer demand.

The NAHB/Wells Fargo Housing Opportunity Index (HOI) for a given area is defined as the share of homes sold in that area that would have been affordable to a family earning the local median income, based on standard mortgage underwriting criteria.

Conference Board Coincident Economic Index: The Composite Index of Coincident Indicators is an index published by the Conference Board that provides a broad-based measurement of current economic conditions, helping economists, investors, and public policymakers to determine which phase of the business cycle the economy is currently experiencing.

Conference Board Lagging Economic Index: The Composite Index of Lagging Indicators is an index published monthly by the Conference Board, used to confirm and assess the direction of the economy's movements over recent months.

New Export Index: The PMI New export orders index allows us to track international demand for a country's goods and services on a timely, monthly, basis.

Gold is subject to the special risks associated with investing in precious metals, including but not limited to: price may be subject to wide fluctuation; the market is relatively limited; the sources are concentrated in countries that have the potential for instability; and the market is unregulated.

The Conference Board Leading Economic Index: Intended to forecast future economic activity, it is calculated from the values of ten key variables.

Source: FactSet, data as of 10/17/2025